10 oct 17

Donlen chief discusses trends in North American fleet management

On a recent trip to North America, we caught up with Tom Callahan, President of Donlen, a fleet and leasing company serving the industry since 1965. Now owned by Hertz, Donlen is headquartered in Bannockburn, Illinois and has a reach that extends beyond the borders of North America. And through Hertz’s global footprint and strategic partnerships that include Athlon, they provide global fleet management solutions, long-term rentals, and local expertise in over 144 countries around the world.

In an upbeat and candid interview, Callahan shared his views on industry trends, a change in mindset and what he thinks about Daimler’s acquisition of Athlon.

“Some of the trends in North America are similar to what they are in Europe. Mobility, for example, the whole idea of one-vehicle/one-driver is disappearing. Everyone is beginning to question the utilisation of vehicles in which 95% of the time it sits around.

We are currently working with companies like UBER and other disruptors, along with Hertz we know that having both a leasing and rental company is advantageous for providing those solutions. You need infrastructure and scale on the rental side and creative financial models that are flexible and customisable for this new world.”

What does the new world of fleet look like in the USA?

“Fleet is evolving rapidly in the US, and we believe that the change we have seen in our industry over the last 25 years will be small compared to the change we anticipate in the next three to five years. Fleet is undergoing many changes, and to be prepared for this new shift, we need to have short-term and long-term strategies in place that we can adjust every year to help our customers be ready for the new trends. It’s an exciting time to be in fleet, and our nimbleness allows us to quickly focus on the up and coming trends such as autonomous vehicles, electrification, and shared vehicle solutions.”   

Autonomous vehicles will be a trend in the future but before that we have a variety of autonomous driving aids that will impact fleet and driver satisfaction. Hopefully, it will drive down the accident rate, which in the USA is over 40,000 road deaths per year. That’s unacceptable. One-in-five vehicles is a fleet vehicle so we have an important role to play in helping make driving safer.

There will be continued use of work fleet vehicles, vehicles that contain special upfits and serve a unique purpose in a fleet’s business model.  These vehicles will be less impacted by the mobility trend. So, managing the supply chain both well and better is something we can help with. Knowing where the vehicle is located; being more transparent; able to track orders through to final delivery will remain priorities.

The need for global fleet managers

“The next trend is the move towards the global fleet manager. I don’t believe you can have one-solution-that-fits-all, there are differences across the regions, but as a fleet management company you have to provide three things:

  1. More robust global reporting to include asset data, fleet data, with good coverage at least at the local level. That takes cooperation and continued IT investment.
  2. Companies like UBER that evolve into large fleets, which then need managing and there’s only a handful of people with the skill to do that, so you must acquire the skillset to do it - and that’s where we come in.
  3. Ride sharing, car sharing, ride hailing – there are many exciting new businesses that use the power of technology to change the way people move around, however they also have gaps when it comes to fleet management. The companies have very bright individuals, and they can try to duplicate what fleet management companies are doing, but the better way to grow is to outsource that expertise to companies like Donlen who have the knowledge, and infrastructure.

In the USA, we have approximately 3.8 million vehicles under management by seven or eight fleet management companies. Mobility providers are a whole different market and they need fleet management.

A few years ago, fleet management was viewed as a sleepy space but it has become quite sexy. Some of the brightest minds are being attracted to it.

There is already a move away from vehicle ownership. Some companies in similar industries are looking at how they can share vehicles by setting up consortiums and pooling resources.

It’s important to adopt best practices from wherever you can.”

The opportunity of fleet telematics

“Telematics is a fantastic opportunity. We’ve seen adoption in sales and service fleets because of the compelling view around safety, driver behaviour, score carding, driver training and so on. Telematics enables you to identify those things and change them, therefore reducing the risk.

There’s a very large opportunity, as I see it, for better instruction from dealers all the way through to FM companies to advise clients on what’s available in their vehicle, the safety features. Frankly, in the States, the OEMs are putting technology in their vehicles at lower price points and it’s something we’ve advocated for a while.”

Daimler’s acquisition of Athlon and what that means

“The thing I’m excited about is that Daimler has a great reputation as an OEM, everything I talked about earlier (safety, mobility) they’re doing it now and that type of mindset is critical for Athlon.

They are committed to helping us grow and have opportunities to do so with their existing relationships.

They looked at others: BMW, Alphabet, and others but at the end of the day, they said: “having a fleet management company is good for us.” And I like that, it’s important to know. I’m excited about the opportunities to create great products and a better global value proposition.

They will continue to move swiftly in the direction of mobility and they’ll be tackling opportunities to gain market share and do all the things Alphabet’s been able to do with BMW. I don’t think that’s lost on them.”

IAS Plus, and the potential shortening of lease contracts

“In the USA, we offer the open end TRAC Lease, which is a twelve-month contract so technically it doesn’t apply. However, everybody has to consider what’s acceptable to their own accounting firms. We believe an open-end TRAC Lease is a flexible option as it doesn’t have to go on the balance sheet. Most TRAC leases will recognize a lease liability and Right of Use (ROU) asset, a fraction of the asset’s cost. The liability is not debt and has no impact on any key ratios or measurements, and the TRAC structure provides the greatest flexibility for minimizing the balance sheet impact. For fleet leases, ASC842 is an accounting exercise, and does not diminish the financial and operational benefits of leasing at all.

If you’re asking whether we need something shorter, more creative financing, perhaps a multi-month solution, like a quasi Hertz/Donlen offering? Yes, I believe as you get into discussion with mobility providers you have to become more creative.”

A bright future for Donlen

“A further opportunity is to continue to deliver a value proposition with Hertz, and drive higher employee engagement. Training and development, for us, is important and we’ve created a separate group to drive that. Everything we’ve talked about (mobility, technology, Silicon Valley, the need for a different mindset, project management and so on) all requires training and development and that’s something we’re focused on.

We’re ready for the future, the combination of what Hertz, our global partners and ourselves at Donlen can offer, whatever it is, we are well positioned to deliver.” 

Authored by: Alison Pittaway